When traveling abroad, many people prefer to use their credit or debit cards to pay for things and services. Unfortunately, not all countries are universally accepting of credit or debit cards. So, you can only imagine the nightmare it can be if you want to get from the airport to your hotel and the taxi driver does not accept credit cards. Things only get worse if the airport currency exchange kiosk is also closed.
That’s why having a little cash in hand when going overseas is probably the most effective way to protect yourself from unpredictable circumstances that require cash. Before you rush to the nearest bank to exchange your money into the local currency, read through this guide, which highlights some key must-do’s and things to avoid when exchanging currency and pinpoints ways to be smart about how you get foreign currency and save money.
Expensive ways to exchange currency abroad
Here are four of the most costly ways to exchange money abroad. To avoid hefty service charges and exchange rates, do not:
- Exchange currency at the airport – You will find currency exchange kiosks at virtually every international airport. Although exchanging money at the airport is quite convenient, you can’t expect much value out of it. This is because airport currency exchange booths charge quite high fees while also including high exchange rates and high margins. So you could be charged up to 10% more overall.
- Exchange money at your hotel – Same as above, some hotels feature foreign currency exchange desks, offering terrible value. Again, you find convenience, but extremely low value as you will be asked to pay the high margin that is built into the exchange rate. Plus, foreign currency exchange desks at hotels usually have a ton of hidden fees. So, they should be your last resort.
- Use prepaid travel cards – If you use a prepaid card, it will most likely cost you quite a lot. Besides the annual fee (around $7 on average), a prepaid card usually comes with an extra fee for ATM withdrawals (often about $5-$7 on top of the $5 out-of-country ATM fee) and a special charge for international transactions (most of the time, it is around 2.5%-3.5%). Therefore, withdrawing say $100 may as well cost you as much as 11% more ($11) — which is a substantial amount.
- Exchange currency at your retail branch – Heading to your retail bank branch to buy currency should be avoided unless you’re okay with paying quite more than expected. Most of the time, it’s challenging to figure out how much a bank charges you for exchanging foreign currency as they rarely deviate from their spot rate margin. Nevertheless, you will most likely pay anywhere from 2.5% and up to 4%, which is certainly an unnecessary amount to pay.
Cheap ways to exchange foreign currency
Below are four convenient and cost-effective ways to exchange money abroad. You can:
1. Get a credit card with zero foreign transaction fees
If you get a no foreign transaction fee card, you will be relieved of the charges tied to making purchases abroad or related to traveling in general. This instantly saves you 1%-3% when visiting a foreign country. If you do thorough research, you will also find credit cards that also feature $0 annual fees. So using such a card will enable you to enjoy lower exchange rates when converting currency than banks and airport currency exchange kiosks.
Important Note: You don’t need to be on foreign land to be charged a foreign transaction fee. For instance, you could be charged this fee if you book a flight through a Thai airline from your computer in London.
2. Get a credit card that offers cash back on foreign purchases
Some credit cards do charge foreign transaction fees but offer cashback on purchases you make in a foreign currency. So although you are charged a 2.5% foreign transaction fee, you might be offered a 4% cash back on the stuff you buy abroad. This ends with you netting 1.5% cashback, which is extremely beneficial to you when traveling abroad. Finding a card that subsidizes foreign transaction fees is a good way to get value for your money.
3. Digital Payment Providers
Digital payment providers often offer extremely competitive currency exchange rates, along with low fees, and quick transaction times. Cashero is among these kinds of companies. As this subsection of the FinTech sector is still quite new, different providers may offer different services. But you will likely find one that gives you all the benefits other ways of exchanging currencies offer, with very few downsides.
4. Buy currency from another world traveler
It may sound strange, but many individuals who travel abroad actually place ads online, and on social media platforms for the currency they did not manage to change back into dollars. A good idea to avoid all fees included, in this case, is to make the currency exchange at currency exchange rates (no markups). In doing so, though, make sure you learn the ropes of how to calculate exchange rates. You can use an online currency exchange calculator. Needless to say, safety is an issue to consider every time money is involved. That’s why it’s advised to make the exchange in a public place and bring a friend or family member along.
Tips to save on foreign currency exchanges
Besides steering clear of airport currency exchange kiosks, here are some handy ways to help you make the most of foreign currency exchange and save money:
- Track currency rates – Websites like Google and XE and financial newspapers (i.e., Bloomberg) are great sources to check for things that affect currency rates. Among the factors to track are (1) what experts predict to happen, (2) what the past rates look like, and (3) how the currency rate is reacting. Getting access to such information will help you decide when it might be the best time to exchange money.
- Ask around for prices – You can’t expect to get the official currency rate when you use a foreign currency exchange service. There are always extra fees added to the exchange rate, so banks and foreign exchange companies can make money. Therefore, before you exchange currency, check with various providers to see which one offers the most competitive rates compared to the actual rate. Ask to know what fees may be hidden. It’s best to find providers like Cashero who display all potential fees, if any, clearly and up-front.
- Avoid using a credit card – Unless it’s a card with zero transaction fees, making purchases with a credit card is a no-no. This is because when you use a card abroad, your transaction is considered a “cash advance” payment, which comes with a 2%-5% fee. If you do the math, you will instantly figure out how much more it will cost you to use your credit card.
Consider getting an MCP (Multi-Currency Cash Passport) – Buying an MCP is an option worth considering, especially if you are traveling to big countries (i.e., Australia, Japan, etc.) or in Europe. A multi-currency cash passport is actually a debit card that enables you to hold up to five different currencies. Compared to a traditional credit card, an MCP is a much cheaper alternative. You will get a chip and PIN code to spend money on your travels.
Exchange your money before you head back home – Of course, you can also consider exchanging any leftover currency in the country you have visited rather than bringing it back home. That way, you may get a better currency exchange rate for the excess money.
Summary:
It’s best to plan how you’re going to exchange currency way before leaving for your trip. Putting things until the last minute will probably have you end up paying high rates, especially if you turn to vendors in touristic neighborhoods or airports. Various options are available for getting a solid exchange rate, so look around well before you go. If you’re looking for a way to hold alternative currencies including USD, GBP and EUR for an extended period of time, Cashero’s multi-currency savings account may be exactly what you’re looking for.
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As of the date of publication, the information contained on this page is deemed to be factually accurate for all terms of conditions, features, and fees. Changes made to Cashero’s terms of conditions, features, or fees after the publication of this content may not be accounted for.
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